Working Paper: NBER ID: w10831
Authors: Michael J. Geske; Valerie A. Ramey; Matthew D. Shapiro
Abstract: The value of installed computers falls rapidly and therefore computers have a very high user cost. The paper provides a complete account of the non-financial user cost of personal computers -- decomposing it into replacement cost change, obsolescence, instantaneous depreciation, and age-related depreciation. The paper uses data on the resale price of computers and a hedonic price index for new computers to achieve this decomposition. Once obsolescence is taken into account, age-related depreciation -- which is often identified as deterioration -- is estimated to be negligible. While the majority of the loss in value of used computers comes from declines in replacement cost, this paper shows the second most important source of decline in value is obsolescence. Obsolescence is accelerated by the decline in replacement cost of computers. Cheaper computing power drives developments in software and networks that make older computers less productive even though their original functionality remains intact.
Keywords: Computers; Depreciation; User Cost; Obsolescence
JEL Codes: C81; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decline in replacement costs (Q31) | depreciation of computers (C88) |
| obsolescence (L15) | depreciation of computers (C88) |
| instantaneous depreciation (D25) | depreciation of computers (C88) |
| advancements in technology (O33) | obsolescence (L15) |